Help to Build Mortgages

If you like the idea of building your own home but don’t have a large amount of cash readily available, you may want to consider a Help to Build mortgage.

In this comprehensive guide, we’ve gathered everything you need to know, including how the Help to Build initiative works, how to improve your chances of being approved, and how a broker can help.

What is a Help to Build mortgage?

A Help to Build mortgage enables homeowners with smaller deposits to custom-design and build their own home.

While most self-build mortgages require a deposit of at least 25%, with a Help to Build agreement, you only need to put down 5% up front. The remaining cost of the project is funded via a Help to Build mortgage and a government-backed equity loan.

As with standard self-build mortgages, your lender will release funds at various stages during the construction phase. Your initial mortgage will be interest-only. Once your home is built, your lender may automatically switch you onto a repayment mortgage (but this isn’t always the case).

How does the loan work?

You can apply to borrow between 5% and 20% of the estimated cost of buying land and building your home on it (or up to 40% in London).

Total costs of buying the land and building on it must not exceed £600,000, or £400,000 if you already own the land.

You can only get the loan if you’ve applied for a Help to Build mortgage from a lender approved by Homes England.

The loan is interest-free for the first five years. From year six, you pay 1.75%, with the rate increasing each subsequent year in line with the consumer price index (CPI) plus 2%.

You pay the loan off when the term of the loan ends (usually 25 years), you sell your home, or you finish paying off your mortgage.

When do you receive the loan?

You won’t actually receive the loan into your bank account. Your self-build mortgage will cover the costs of securing the land and building the property. Then once the property is complete, the government will pay the loan to your lender to help reduce the amount you need to borrow on your mortgage.

How maximum borrowing is calculated

Your mortgage lender will carry out an affordability assessment to decide how much they’ll be prepared to lend you. Most lenders will offer 4.5 times your income. However, some will stretch to 5 and a handful as much as 6.

In addition, for this type of mortgage, they will also want to conduct a thorough review of your plans, architect drawings, any planning permissions received/sought/needed and schedule of work etc.

Eligibility criteria

In order to be approved for a Help to Build mortgage, you’ll need to:

• have a deposit of at least 5% of the estimated cost of the land and building works
• be aged 18 or over
• have the right to live in England
• intend to live in the new property upon its completion and sell any other residential property you own within 12 months of the new home being built
• not have any other residential properties in the UK or abroad, including buy to lets

As mentioned above, you won’t be able to apply for a Help to Build equity loan unless you have a mortgage offer from a lender registered with Help to Build.

The mortgage must be a self-build mortgage, which is a type of mortgage you get when you’re building your home yourself.

How a broker can help with your Help to Build application

A Help to Build mortgage could be the boost you need to make the dream of building your new home a reality. However, it’s a big financial commitment, one that shouldn’t be undertaken lightly.

That’s why it’s a good idea to seek advice from a broker who specialises in self-build mortgages. They’ll be able to review your circumstances and advise you on whether a Help to Build mortgage is right for you and, importantly, whether you’re eligible.

If you are, they’ll be able to help you apply for both your mortgage and your loan.

The brokers we work with have years’ of experience securing self-build mortgages for clients.

Get in touch today and we’ll match you with an expert from our extensive network.

Which lenders offer these mortgages?

At the time of writing, the only lender offering Help to Build mortgages is Darlington Building Society. However, at least eight more lenders are expected to start offering them soon.

Darlington is currently offering two products, both of which are three-year mortgages at rates of 5.39% and 5.99% (these rates may be subject to change at the lender’s discretion).

Approaching the lender directly is not recommended as you might be able to secure an exclusive, broker-only deal through them if you apply via a mortgage advisor.

Plus, the process for getting a self-build mortgage is far more complex than for a standard mortgage, so a broker’s knowledge and experience could really make the difference.

Moreover, there are other ways to finance the construction of a property and a broker can go over every alternative with you and make sure you choose the right option.

Things to consider

Help to Build mortgages might sound like an attractive option, but there’s plenty to think about before you apply.

• Firstly, you need to make sure you’ll be able to build the home you want and need. Remember, under the Help to Build scheme, you can only spend up to £600,000 on your new property (or £400,000 if you already own the land). Will that be sufficient to create your dream home?
• You also need to make sure you’ve got planning permission for the land you want to build on. Most lenders will require this before making you a mortgage offer. And you can’t apply for the equity loan until you at least have a mortgage offer in writing.
• You will need all the relevant architect drawings and schedule of works ready before a lender will offer you their indicative terms
• It’s also important to remember that when you take out an equity loan, the government owns a stake in your land and property. So, if you borrow 10%, the government essentially owns 10%. This percentage does not change throughout the length of the term. But as the value of your property increases or decreases, so does the amount you have to repay on your equity loan.
• Finally, it’s worth noting that the government has said Help to Build will last only four years and will end in 2026, possibly sooner depending on demand. So, make sure this fits in with your timeframe.

Why Help to Buy is unsuitable for self-build borrowers

Help to Buy is a similar government initiative aimed at helping people get on the housing ladder with a small deposit. However, it isn’t suitable for self-build borrowers because with Help to Buy, you don’t receive funds regularly from your lender. With self-builds, funds are needed throughout the construction process to pay various different parties.

With Help to Build, your lender will check your build progress regularly and release lump sum payments to you at different stages, to help pay for the build.

You have three years to buy the land and build your property.

Get matched with a self-build mortgage specialist

If you’ve always fancied custom-designing and building your own home, the government’s Help to Build scheme could be exactly what you need to achieve your dream.

However, it’s a significant financial commitment as you’d be taking on both a mortgage and a loan. That’s why talking to an experienced broker who specialises in self-build mortgages should be your first course of action.

Our broker matching service can connect you with an expert who will be able to review your situation and advise you on whether Help to Build is right for you.

Give us a call on 0808 189 0463 or make an enquiry and get matched with an expert today for a free initial conversation.